HKMA introduces new measures to support offshore yuan liquidity

Reuters Staff

2 Min Read

HONG KONG, Jan 15 (Reuters) - The Hong Kong Monetary Authority (HKMA) announced new measures on Tuesday to further support the development of the offshore yuan market and meet banks’ needs to manage short-term yuan liquidity.

The HKMA has decided to shorten the notice period required for Authorized Institutions participating in RMB business to request RMB funds from two business days (T+2) to one business day (T+1) from Wednesday, it said in a statement.

These institutions may approach the HKMA before 12pm local time on any business day for RMB funds, and the funds would be available the next day.

Hong Kong’s de facto central bank introduced the facility for providing RMB liquidity last June, which makes use of the currency swap arrangement between the HKMA and the People’s Bank of China to get RMB.

The facility helps banks better manage their short-term needs of RMB liquidity, given China still has a tight grip over its capital account and the offshore yuan pool is relatively small.

However, bankers have been complaining about the T+2 mechanism and the high borrowing cost with reference to the onshore weighted-average seven-day bond repurchase rate .

The HKMA also said the net position in RMB currency futures could be used for offsetting against the RMB net open positions (NOP), or bets on the currency’s future movement, in the opposite direction with immediate effect.

It first imposed a limit on Hong Kong banks’ net open positions in the yuan in December 2010, and raised the NOP limit from 10 percent to 20 percent last May before allowing the Authorised Institutions to set their own internal net open positions. (Reporting by Michelle Chen; Editing by Anne Marie Roantree)